Insights

In this week’s In Focus, we continue our review of Medicare developments from this summer and look ahead at Centers for Medicare & Medicaid Services (CMS) activities to watch for this fall.

CMS ACO Strategy Update

In a July 31, 2023, Health Affairs Forefront blog, CMS leaders outlined the agency’s plan to further accelerate the growth and accessibility of accountable care organizations (ACOs), especially for beneficiaries in rural and underserved areas. The article signals the agency’s continued commitment to increasing participation in ACOs and future policy and model initiatives that CMS could undertake to achieve those goals.

In particular, the CMS Innovation Center is considering testing models and features to support Medicare Shared Savings Program (MSSP) ACOs in increasing investments in primary care. This initiative might include piloting ACO-based primary care models that provide prospective payments in an effort to reduce reliance on fee-for-service (FFS), support innovations in care delivery, and increase access to advanced primary care in underserved communities.

CMS leaders point to a second component of its ACO strategy in the calendar year (CY) 2024 proposed Medicare Physician Fee Schedule (PFS) rule. The proposed PFS includes technical updates to the Advance Investment Payment (AIP), which provides financial support for providers who participate in the MSSP. The proposed PFS rule also includes several opportunities for the public to inform CMS’s ongoing ACO work, including considerations for adding higher-risk participation options in the MSSP, ways to better support collaboration between ACOs and community-based organizations to meet health-related social needs, and other initiatives. HMA discussed the PFS changes in an earlier In Focus.

CMS also announced refinements to the ACO Realizing Equity, Access, and Community Health (REACH) Model on August 18. The agency’s three goals in making these changes are to:

• Increase predictability for model participants (e.g., policies to change certain beneficiary alignment requirements and refinements to eligibility criteria for high-need ACOs
• Protect against inappropriate risk score growth (e.g., revisions to the risk-adjustment methodology)
• Advance health equity (e.g., revisions and expansions to the health equity benchmark adjustment)

These topics are of importance to CMS across its model portfolio and are, in part, based on experience the agency has gained in running the ACO REACH model. Below is a summary of several key policy changes that will take effect in 2024. The entire list can be found on the CMS website.

Finally, CMS released the request for applications (RFA) for the Innovation Center’s Making Care Primary (MCP) model previously announced in June. This voluntary model is scheduled to begin in June 2024 and run for 10.5 years. It will have three participation tracks that build upon previous Innovation Center primary care initiatives.

The MCP model is designed to improve care for beneficiaries by supporting the delivery of advanced primary care services. This framework provides a pathway for primary care clinicians who have varying levels of experience with value-based care to gradually adopt prospective, population-based payments while building the infrastructure to improve behavioral health and specialty integration and drive more equitable access to care. CMS is working with Medicaid agencies in eight states—Colorado, North Carolina, New Jersey, New Mexico, New York, Minnesota, Massachusetts, and Washington—to engage in full care transformation across payers, with plans to engage private payers in the coming months.

The RFA provides additional details about the model’s payment, care delivery, quality, and other policies. The application period opens September 4, 2023, and closes November 30, 2023. CMS plans to select participants in winter 2024. Onboarding for participants will take place April−July 2024.

The HMA team continues to review the RFA and is available to assist clients in determining whether this model may be a good fit as well as with assistance in submitting the application.

What to Watch

Comments on the Medicare CY payment rules (home health, end stage renal disease, physician, and outpatient hospital) are due in early fall. CMS will review the comments on each of the proposals and finalize each rule by November 1. Some stakeholders, such as physicians and home health suppliers, may seek congressional action to mitigate payment cuts that CMS has proposed.

In addition, CMS is expected to continue implementing the drug pricing related provisions of the Inflation Reduction Act (IRA). The agency already has released several guidance documents about the process. The list of the first 10 drugs to be negotiated is due to be published September 1, 2023, and manufacturers of selected drugs will have one month to sign agreements to participate in negotiations and provide information for CMS’s consideration in the negotiation process.

The HMA team will continue to evaluate Innovation Center opportunities, CMS payment regulations, and IRA implementation. If you have questions about these topics, contact Amy Bassano ([email protected]), Kevin Kirby ([email protected]), or Andrea Maresca ([email protected]).

This week, our In Focus section continues analysis and insights from Health Management Associates (HMA) and its affiliate The Moran Company on recent Medicare payment and policy developments. Today, we review the policy changes that the Centers for Medicare & Medicaid Services (CMS) released August 1, 2023, for the fiscal year (FY) 2024 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) final rule (CMS-1788-F).

This year’s IPPS final rule includes several important policy changes that will alter hospital margins and change administrative procedures beginning October 1, 2023. More specifically, the IPPS rule increases payments to hospitals, enhances the wage index policy for rural hospitals, reduces Medicare disproportionate share payments, and modifies the New Technology Add-on Payment (NTAP) program.

Key provisions of the FY 2024 Hospital IPPS and LTCH Final Rule

We highlight four policies that will significantly affect Medicare beneficiaries, hospitals, health systems, payers, and manufacturers:

1. The annual inpatient payment update
2. Medicare disproportionate share hospital (DSH) payments
3. Hospital wage index adjustments
4. NTAP policy changes

Hospital market basket update and the inpatient standardized amount

CMS’s Medicare 2024 IPPS final rule will increase payments to acute care hospitals by an estimated $2.2 billion from 2023. The primary driver of this increase is CMS’s 3.1 percent increase in the annual update to inpatient operating payment rates. The update is the sum of the hospital market basket update of 3.3 percent and a statutorily required 0.2 percentage point reduction for productivity growth.

HMA/Moran analysis: Between the time CMS released the 2024 proposed IPPS rule and the final rule, the inpatient payment update for 2024 increased to 3.1 percent from 2.8 percent. This spike occurred because of the effects of an increase in estimated inflation on the cost of a standard basket of hospital goods (hospital market basket) throughout 2022 and 2023. Although economy-wide inflation slowed in mid-2023, inflation was higher in late 2022 and early 2023—the period in which the market basket is measured for the final rule.

For beneficiaries, increasing payment rates eventually will lead to a higher Medicare inpatient deductible and greater out-of-pocket costs for many other services. For hospitals and healthcare systems, payers, and manufacturers, a payment increase of 3.1 percent falls below economy-wide inflation (5−6 percent in recent months).

Despite the publicized 3.1 percent payment update for 2024, after factoring in various policy adjustments the actual change between 2023 and 2024 to inpatient payments per case will be roughly 2 percent. The primary reason per-case payments will increase only 2 percent is a budget-neutrality adjustment that CMS finalized for 2024 to account for hospital wage index reclassifications. This adjustment will reduce payments to all hospitals by more than 1 percent to neutralize the added program spending associated with payments to hospitals that choose to reclassify into higher paying wage index areas. The final rule states, “[T]he geographic reclassification budget neutrality adjustment is significantly larger than in prior years.”

Medicare Disproportionate Share Hospital Payments

CMS finalized two Medicare disproportionate share hospital (DSH)-related policies for 2024. First, DSH payments and Medicare uncompensated care payments combined will decrease in FY 2024 by approximately $957 million. Second, CMS finalized its proposal to limit the number of patient days included in the Medicare DSH calculation to only those days when the patient’s Medicaid Section 1115 Demonstration health insurance covers inpatient hospital services or the patient’s premium assistance program covers 100 percent of the premium cost for patients who buy health insurance that covers inpatient hospital services, if the patient is ineligible for Medicare Part A.

HMA/Moran analysis: CMS’s $957 million reduction in DSH and uncompensated care payments stems from the agency’s estimate of the percentage of individuals without insurance in the United States. Between the 2024 proposed and final rules, CMS estimates the percentage of individuals without insurance will decline from 9.3 percent to 7.7 percent in 2023 and from 9.2 percent to 8.5 percent in 2024. As a result, the pool of uncompensated care dollars available to hospitals for 2024 was reduced from roughly $6.7 billion to $5.9 billion.

CMS’s estimated decline in the rate of uninsured beneficiaries is somewhat surprising given the common projection that Medicaid enrollment will drop following the end of Medicaid’s COVID-19 related continuous coverage policy. However, HMA/Moran colleagues believe state-level Medicaid enrollment changes will vary in the year ahead. Consequently, hospitals located in states where levels of Medicaid enrollment are sustained will benefit from CMS’s uninsured rate estimates and hospitals in states where Medicaid enrollment drops will not.

With regard to the Section 1115 demonstration related DSH policy, hospitals located in states that have not expanded Medicaid under the Accountable Care Act and instead rely on Section 1115 Demonstrations to expand health coverage, are likely to receive lower DSH payments. In addition to the Medicare DSH payment adjustments, reductions in the Medicaid DSH program are scheduled to begin October 1, 2023. The $8 billion reduction in FY 2024 is the first time CMS has planned to make cuts in the program.

Hospital Wage Index Adjustments

CMS finalized two wage index policies for FY 2024. First, CMS will extend the low-wage index hospital policy, which boosts the wage index of hospitals in geographic areas with low wages relative to other areas. Second, CMS finalized a policy to begin including labor data from urban hospitals that choose to reclassify as providers in rural areas to maximize their payment into the calculation of rural wage index areas.

HMA/Moran analysis: These two wage index policies for FY 2024 will increase payment to rural hospitals. Under the first policy, hospitals with wage indexes below 0.8667 (the 25^th percentile across all hospitals) will automatically receive an increase in their wage index and therefore their payment rates for inpatient cases. Under the second policy, the inclusion of labor data for geographically urban hospitals that choose to reclassify into rural wage index areas within the calculation of state-level rural wage indexes and the state-level rural floor will increase payments to rural hospitals in many states. The overall impact of both proposed wage index policy changes for FY 2024 will be an increase in inpatient payment rates for rural hospitals.

New Technology Add-On Payments (NTAP)

Citing the increased number of applications for NTAP over the past several years and noting the need for CMS staff to have time to review and analyze the applications, CMS finalized two changes to the NTAP application requirements. First, CMS will require that all applicants have a complete and active U.S. Food and Drug Administration (FDA) market authorization request in place at the time of NTAP application submission, if not already FDA approved. The FDA’s acceptance letter will serve as proof of a full and complete application. In addition, CMS proposes to move the FDA approval deadline from July 1 to May 1, beginning with applications for FY 2025.

HMA/Moran analysis: The stated aim of these CMS policy changes is to “increase transparency, facilitate public input, and improve the review process.” As a result of these modifications, products will need to be on the market longer before the NTAP payment begins, and fewer products will be eligible for the three full years of NTAP payments. Taken together, hospitals will have a shorter NTAP payment window for most products. The further tightening of FDA application and approval requirements runs counter to the efforts of various stakeholders to establish more flexible or additional NTAP application windows.

HMA and The Moran Company collaborate to monitor legislative and regulatory developments in the inpatient hospital space and assess the impact of inpatient policy changes on the hospital sector. HMA’s Medicare experts interpret and model inpatient policy proposals and use these analyses to help clients develop their strategic plans and their comments on proposed regulations. Moran replicates the methodologies CMS uses in setting hospital payments and models alternative payment policies to help support stakeholder comment letters and strategies. Moran also assists clients with modeling diagnosis-related group reassignment requests and to support innovative NTAP applications.

For more information or questions about the policies described above, contact Zach Gaumer ([email protected]), Amy Bassano ([email protected]), Clare Mamerow ([email protected]), or Kevin Kirby ([email protected]).